When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (TLT) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $159-$162 in-the-money vertical Bear Put spread at $2.60 or best
Opening Trade
1-12-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
If you don’t play options, just go out and buy the ProShares Ultra Short Treasury Bond Fund (TBT) outright.
We have just rallied a full $1.20 off of the $149.93 low today, thanks to the best Treasury bond auction action in more than a year. Some $38 billion in ten-year bonds were placed. Finally, yield-starved bond investors are getting a modicum of income, 36 basis points higher than they were getting six weeks ago.
The memo is out now. Bonds have already dropped $8 in six trading days and the worst is yet to come. This is becoming a one-way trade. Therefore, I will be selling even small rallies, like the one we just saw.
With 2021 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $159-$162 in-the-money vertical Bear Put spread at $2.60 or best.
Don’t pay more than $2.70 or this is really not worth doing.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021 it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This is a bet that the (TLT) will not rise above $159.00 by the February 19 option expiration in 26 trading days. To lose money on this position ten-year US Treasury yields would have to approach 1.45%, which they won’t in a month.
Here are the specific trades you need to execute this position:
Buy 40 February 2021 (TLT) $162 puts at…….…….………$11.50
Sell short 40Februuary 2021 (TLT) $159 puts at…….……$8.90
Net Cost:………………….........……….………....………….….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(40 X 100 X $0.40) = $1,600 or 16.00% in 26 trading days.
The Fat Lady is Singing for the Bond Market
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
